No cheer in wage weakness and consumer doubts

Mark Mulligan

Wages growth and consumer sentiment remain subdued across Australia, pointing to a less than merry holiday season for some households and retailers, experts say.

Westpac chief economist Bill Evans described prospects for Christmas as "disturbing", after the latest Westpac Melbourne Institute Index of Consumer Sentiment revealed that 38 per cent of respondents would spend less on gifts than last year and 50 per cent the same.

Bill Evans, the bank's chief economist, said he expected the index to recover once European fears settle down. Photo: Lisa Maree Williams

The remaining 12 per cent said they would spend more.

"The net balance of minus 26 per cent is the worst since 2008 [minus 34 per cent] which was in direct response to the global financial crisis," Mr Evans said.

"Over the subsequent five years, the net balance has been tightly clustered around minus 22 per cent, so the result for 2014 is a marked deterioration."

The lift in Yuletide parsimony comes despite a slight improvement in consumer sentiment, according to the same Westpac-MI survey, but also coincides with a continued softness in wages growth, at 0.6 per cent in the September quarter and 2.6 per cent year-on-year.

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Both sets of data follow a mixed picture from National Australia Bank on Tuesday, with its October business survey showing confidence down but operating conditions greatly improved.

In Wednesday's Westpac-MI survey, sentiment rose by 1.8 points in November, to 96.6 from from 94.8 in October. However, anything below 100 means there are more pessimists than optimists and this has been the case for longer than expected, according to Mr Evans.

"This is an unsurprising but still disappointing result," he said. "The index is 12.5 per cent below its level of a year ago and 3.6 per cent below its level before the lead-up to the Commonwealth budget in May.

"In fact, we have now seen nine consecutive months where pessimists have outnumbered optimists. That is the longest run of pessimists outnumbering optimists since the global financial crisis, and before that, the recession of the 1990s."

Wages growth, meanwhile, remained flat at 0.6 per cent in the September quarter, according to the Australian Bureau of Statistics, which highlighted the smallest ever quarterly rise in the resources sector.

Wages in what was until recently the main engine of Australian growth grew just 0.2 per cent in the quarter, reflecting the shift from a resource-related infrastructure boom to a less labour-intensive ramp-up in mineral exports.

Year-on-year, mining wages grew 2.5 per cent, compared with an annual increase of 5.2 per cent for the year ending September 2012, according to the ABS.

The ABS said wage growth had been strongest in the accommodation and food services industry, at 1.9 per cent. It ascribed this partly to an increase in the minimum wage.

Senior economist at St George Janu Chan said Wednesday's data releases reflected consumer unease due to unemployment of 6.2 per cent.

Wages growth in most sectors was likely to remain subdued until employment picked up, she said.

"The slow pace of wage growth indicates that labour market conditions remain soft," she said. "Further, the unemployment rate is unlikely to fall substantially in the near-term, and this will continue to keep a lid on wage growth."

She said the pessimism portrayed in the Westpac-Mi survey contrasted with a recent pick-up in retail spending.

"While the downturn in sentiment isn't yet translating into weaker actual spending, consumer worries could limit any further pick-up," she said.

Despite the gloom, department store group Myer remains upbeat on the shopping season.

Chief executive Bernie Brookes said in a statement to the stock exchange: "We believe the business is well positioned to make the most of the busiest time of the year during Christmas and the stocktake sale."

His comments came as the group posted a paltry 0.1 per cent growth in sales for the 13 weeks to end-October, sharply below expectations.